Today, let’s talk about a trend that is taking the finance world by storm today: Cryptocurrency Investment, as well as its pros and cons. How can someone start investing? Is it safe to invest in cryptocurrency? Will you gain a good amount of profit from it? What are the risks? Let’s find out as we go along.
Cryptocurrency has been around since the previous decade. And since the development of bitcoin, it has slowly but steadily started to become noticed. While the idea of investing in digital currency is almost unthinkable in the past, today, the tables have turned completely upside down. Nowadays, cryptocurrency is now becoming a viable addition to anyone’s investment portfolio, similar to stocks and property. In fact, some investment banks are now considering offering cryptocurrency investments to patrons. And the fact that the process of investing in crypto is becoming easier nowadays only helps in raising its value even more.
In this article, we’ll discuss the basics that you’ll need if you want to start your own cryptocurrency investment. As well as the pros and cons of it.
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A quick trivia: Did you know that the idea of cryptographically-signed digital money predates Bitcoin by almost three decades? David Chaum was the first to present the idea in 1983, called eCash, although it was fully implemented in 1995 through his company, DigiCash. You can still see his research paper here.
Bitcoin, the currency that started all this craze, was revolutionary for its time because it’s the first crypto-signed digital currency that is completely decentralized. This means there’s no central authority or some big bank that manages and keeps track of its circulation. This is unlike the U.S. dollar, on which the Federal Reserve has oversight.
This is achieved by using an innovative record-keeping technology called the “blockchain“, which serves as its own public ledger.
Since then, other cryptocurrencies made using bitcoin’s underlying technology have sprung up. They are all collectively known as “altcoins”. Among the thousands of altcoins available in circulation, the most prominent ones are…
- Litecoin (The earliest altcoin, conceived in 2011)
- Ethereum (The second-highest valued cryptocurrency as of today)
- Ethereum Classic (A “hard fork” of Ethereum)
- Bitcoin Cash (A “hard fork” of Bitcoin)
- Dogecoin (Based on the “Shiba Inu” meme, made notable after its endorsement by SpaceX & Tesla Inc. CEO Elon Musk.)
There are also a smaller number of lesser-known cryptocurrencies, such as this one whose name is not safe for work, while there’s also one whom you might question its legitimacy because of its name. You can view it more in this video right here…
Since its inception, blockchain technology has also been used successfully by various technology companies worldwide. Examples are Oracle Corp. IBM, and even Visa.
Cryptocurrency Investment Pros
- You Have Full Control Of Your Money: The decentralized nature of cryptocurrency means that it’s owned by no one, and EVERYONE, at the same time. You have full ownership of whatever cryptocurrency you own, and no one can take it from you. Unlike with regular money, the banks themselves have the final say on what to do with your money. And yes, that can also mean shutting it down.
- It’s A Universal Currency: Regular currency like the U.S. dollar only has value within a certain jurisdiction which the central bank dictates. With cryptocurrency, it shares the same value wherever you go, be it a different country or so. Furthermore, the adoption of cryptocurrency payments for several goods and services is increasing as days go by.
- It Has High Flexibility: With traditional money, transactions usually have to wait a few days before the banks credit you. Furthermore, most banks aren’t open all the time to process your transactions. With cryptocurrency, it only takes minutes, maybe even seconds, to fully complete any transaction, even exchanges. You can buy new assets as soon as the price goes low, or even sell them when it gets high. Also, the crypto-market is open every time, further adding to its liquidity.
- They’re Highly-Resistant To Inflation: Cryptocurrencies retain their value and strength over time. Its inflation resistance is owed to its limited supply in circulation. And some cryptocurrencies place a supply cap after a set amount of coins has been produced. This is necessary to protect their value.
- Easier To Invest Into: With regular money, you’ll need to do a fair amount of paperwork, and even time, before you can start investing. With cryptocurrency, all you need to do is to create an account at any cryptocurrency investment site, set up your wallet, and that’s it.
Cryptocurrency Investment Cons
Despite the numerous benefits of cryptocurrency investments, there are still a few drawbacks that some may have to keep in mind before starting.
- It’s Highly Volatile: While cryptocurrency trading prices can spike up in such a short amount of time (sometimes instantly), the reverse is also true. The Great Crypto Crash of 2018 is perhaps one of the most notable examples of cryptocurrency prices experiencing a sharp drop in value. While this isn’t something new for longtime investors (who just LOVE to invest in these kinds of volatile assets), this could be detrimental for newer investors who have no idea what they are doing. If you’re not careful, you can easily incur huge losses.
- It Has No Intrinsic Value: Keep in mind that cryptocurrencies were originally intended as a medium of exchange, and not as an investment asset. Hence, it has no intrinsic value on its own. It only has value when the collective interest SAYS that it has value. This is in stark contrast with other investment assets like stocks, in which its value is determined by the public company behind that stock. Without any backing asset, cryptocurrency is prone to huge price swings (hence its volatility).
- Negative Environmental Impact: The huge demand for cryptocurrencies creates the incentive to just mine more. Cryptocurrency “mining” is a process wherein one uses computers to solve complex calculations within the blockchain, which becomes more computationally more intensive as it goes on. In fact, bitcoin mining uses up more energy than even entire countries, which in turn, can leave a rather large carbon footprint on the environment. Though there are some steps being taken to reduce the environmental impact of crypto-mining, you may want to steer clear on investing in cryptocurrency if you want to contribute to protecting the environment.
Another key attraction of investing in cryptocurrency, is that its decentralized nature makes transactions completely anonymous. This can be a pro and a con in itself, depending on how it’s used. While this means that you don’t have to worry about your privacy being compromised when you’re doing crypto-transactions (you don’t even have to provide your real name for these), this makes it an easy target for illegal transactions of any kind. Which includes (but is not limited to) drugs trading, etc. Such as in the case of this one.
How To Invest In Cryptocurrency?
Now that you’ve seen the pros and the cons of investing in cryptocurrency, and decided to jump in and take the ride. Here are the steps that you should take on how to start your own crypto-investment.
- Calculate Your Risk: Any investor should be familiar with the quote, “Invest at your own risk.” This is applicable to any type of investment, but is even more important here. Due to the highly unstable nature of cryptocurrency, don’t make the mistake of investing all of your money in it. Instead, try to determine the safe value that you can manage, so that if it crashes, you won’t lose all of your money.
- Choose Your Cryptocurrency: Obviously, bitcoin should be the first choice that you’ll make if you’re going to invest in one type of cryptocurrency. But if you want to diversify your crypto-investments, Ethereum is the somewhat stable choice right now (though still inherently volatile). Or if you want to follow current trends as of this time of writing, you can also add Dogecoin.
- Choose Your Platform: The most popular cryptocurrency trading sites right now are still Binance Coinbase. But as of late, other crypto-platforms are also available if you want. While another platform, Robinhood, mostly specializes in stock trading, it has also started accepting cryptocurrency investments since 2018.
- Set up Your Wallet: Finally, you should set up your cryptocurrency wallet. While they are called “wallets” in a sense, they don’t actually store your accumulated cryptocurrency. Rather, a crypto-wallet is a software program that stores your private and public keys that you’ll need to access the blockchain, where your cryptocurrency is stored. There are several types of wallets for your specific needs (online, hardware-based, mobile, desktop, etc.)
Cryptocurrency Investment: Conclusion
Once you’ve set up your cryptocurrency investment platform, that’s it. Keep in mind that cryptocurrency investment is not for the weak of heart due to their very unstable nature. And if you’re not carefully monitoring it, you might even lose all your invested money.
All types of investments are somewhat similar to gambling in a sense, but its evidently apparent here in crypto. But if you’re willing to accept the risk, investing in cryptocurrency could rake you in huge profits in the long run.
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